How to destroy Obamacare from within
By: Yevgeniy Feyman
August 16, 2013 05:08 AM EDT

As a Sept. 30budget deadline approaches, many in the Republican Party are pushing to repeal the Affordable Care Act, better known as Obamacare. The law’s most radical opponents are even threatening to shut down the government by refusing to pass a continuing resolution, which would fund existing government programs at current or slightly adjusted levels.

The political flaws of this strategy have been debated endlessly inside the GOP. But there is another important consideration: This doesn’t have to be Republicans’ “last stand.” Obamacare doesn’t have to be rolled back from without; it can be replaced from within. And Medicare, perhaps surprisingly, shows the way.

Medicare – the federal government’s program providing health-insurance coverage to the elderly and the disabled – remains one of the hallmark achievements of President Lyndon Johnson’s “Great Society.” Since its inception, the program has grown drastically – from less than 1 percent of all federal spending to around 13.5 percent in 2012. The Congressional Budget Office estimates that the figure will reach 18 percent in a mere decade. But changes to the program over the past 10 years have produced better value for taxpayers’ health-care dollars.

The Medicare Advantage program, for instance – with about 27 percent of Medicare’s total enrollment – lets newly eligible Medicare beneficiaries choose Medicare-equivalent coverage from private insurers. Individuals can select from a variety of plans with varying levels of premiums, copayments, and drug coverage. This approach has introduced competition into Medicare, as insurers bid among each other to offer the most valuable benefit packages at the lowest cost. Most important, the program has pioneered new and promising ways to deliver care.

And it’s working. Recent evidence indicates the added layer of competition and use of managed care in Medicare Advantage has resulted in significantly better outcomes for patients. A recent study by the Boston Consulting Group found that people who enroll in Medicare Advantage tend to fare better than those in traditional Medicare – even when accounting for health status and demographics (Medicare Advantage has more low-income and minority beneficiaries). Patients treated through the managed-care environments preferred by Medicare Advantage had lower mortality rates, shorter hospital stays, and lower hospital readmission rates, as well as fewer visits to the emergency room. Simply put, this means that Medicare Advantage enrollees get more bang for their buck.

Medicare Advantage isn’t perfect. Although private plans routinely bid under Medicare’s costs, payments tend to be about 4 percent higher than Medicare. Because of the way plans are paid – using a “regional benchmark” tied to traditional Medicare costs – the “pure bids” are adjusted for a number of factors that increase the actual payments to plans, such as enrollee health status. Moreover, traditional Medicare doesn’t directly “compete” with Medicare Advantage – that is, enrollees aren’t penalized if they choose the relatively more expensive program. Eliminating the benchmark and moving the entire program – traditional Medicare and Medicare Advantage – to a “premium support” model – with vouchers pegged to the cost of the second-cheapest plan (be it traditional Medicare, or private plans), for instance – would inject even more competition into Medicare while still offering value for taxpayers’ dollars.

So what’s the moral of the story? A flawed program – Medicare – was amended using a smart, market-oriented “scalpel” rather than a butcher knife. Similarly targeted, competition-focused fixes to Obamacare would effectively overturn the law without repealing it.

Here’s how to wield that scalpel: For starters, Republicans should work to abolishthe law’s employer mandate, which requires employers with 50 or more employees to offer health insurance, else pay a penalty. The GOP should also end the tax breaks for employer-provided health insurance — or, alternatively, make the tax exclusion available to everyone. Across the board, economists and health services researchers agree that one of the most pernicious arrangements in the American health-care system is employer-sponsored health insurance. A slew of tax breaks make health insurance cheaper for employers than paying wages. The tax breaks over-insure Americans, drive up the cost of health-care services (when someone else pays your bills, you’re not as picky about costs), and reduce cash wages.

Going forward, smart reforms to Obamacare would extend subsidies to more bare-bones “catastrophic” plans – those that have high deductibles – while loosening restrictions on what qualifies as insurance, allowing more choice and competition in the exchanges. The GOP should hammer home the point that currently, subsidies extend even to middle-class recipients who may not need them – a family of four making $94,000 qualifies for subsidies, for instance. Re-targeting the subsidies to those who need them would streamline the law and reduce its total cost.

There are many other approaches that can, in effect, overturn Obamacare without repealing the law. But the GOP needs to formulate a real plan for health-care reform. Simply being against something isn’t enough.

Yevgeniy Feyman is research associate at the Manhattan Institute for Policy Research.